Tuesday, 17 September 2013

Facebook: Operations & Financials as of Today.

Operations:

Facebook’s
advertising business gained significant momentum past quarter, growing 61%
year-over-year to $1.6 billion. Mobile ad revenue grew significantly as well
and is now approximately 41% of total ad revenue up from about 30% in Q1. Overall
ad impressions were up 43% and the average price per ad was up 13% compared to
last year.

This
is because Facebook’s ad products are delivering impressive ROI for each of
these types of marketers. Direct response marketers including e-commerce
companies increased spend significantly; year-over-year ad revenue from
e-commerce companies doubled in the second quarter. Direct response marketers
are taking advantage of a high click rates and competitive CPCs to grow their
businesses. These marketers are typically very measurement focused and may
quickly increase budgets as Facebook delivers compelling ROI.

Local
businesses also grew spend significantly, Facebook surpassed 1 million active
advertisers this quarter more than double the number they had only a year ago. The
time people are spending on mobile devices is increasing dramatically that yet
mobile represents just 2% of ad spend globally and 3% in U.S.

On
an average day in June, 699 million people used Facebook, up 27% from last
year. This represents 61% of the 1.15 billion people who accessed Facebook at
any point during the month of June.

Additionally,
time spent per person on Facebook continues to increase. In aggregate across
everyone in their network, time spent on Facebook exceeded 20 billion minutes
each day in June. Separately Instagram continues to grow rapidly with
impressive engagement and Facebook announced last month, they had over 130
million actives using the service.

Total
revenue was 1.81 billion up 53% or 54% when adjusted for constant exchange
rates. Ad revenue was $1.6 billion up 61% in the quarter or 63% when adjusted
for constant exchange rates. This was Facebook’s strongest quarter in terms of
advertising revenue growth since the third quarter of 2011. The performance was
strong throughout the world with ad revenue in each of their geographic regions
strong by greater than 50%.

Total
payments and other fees revenue was $214 million in Q2, an increase of 11%
versus last year. Payments revenue from gains specifically was up 7% but we
believe 11% represents the best apples-to-apples comparison.

Overall
ARPU increased 25% compared to last year to $1.60 per user for the quarter,
including a 35% increase in the United States and Canada as well as 30 plus
percent gain in all their other regions.

In
Q2, GAAP total expenses were $1.25 billion, excluding stock compensation. Non-GAAP
total expenses increased 52% to $1.02 billion primarily driven by headcount and
infrastructure. Facebook ended the quarter just shy of 5,300 employees up 33%
from last year and continue with their success in attracting talents. Q2 GAAP
operating income was $562 million representing a 31% operating margin.

Excluding
stock comp, non-GAAP operating income was $794 million, 44% non-GAAP operating
margin. GAAP tax rate for Q2 was 39% and non-GAAP tax rate was 37%. GAAP net
income was $333 million or $0.13 per share and non-GAAP net income was $488
million or $0.19 per share.

Facebook
spent $268 million on CapEx in Q2 as they continue to invest in datacenters and
facilities. Of note free cash flow in Q2 was over $1 billion, this is much
higher than we expect in coming quarters as Q2 free cash flow benefited from
$419 million tax refund and light quarterly spend on CapEx but still a $1
billion in free cash flow is a nice milestone for Facebook against an important
financial metric.

Facebook
has repurchased approximately $153 million worth of shares in the Q2 and ended
Q2 with $10.3 billion in cash and investments.